If you want to go back to the purest form of D&D, the form in which it was developed, you need to understand the megadungeon environment and its implications for the game. The design of D&D using the megadungeon made a few assumptions that may be incorrect for the modern game, but the legacy issues are important to know about. Of course, I am speculating here based on what I’ve observed, so I may be far removed from the truth, but I’ve found it amusing to write about… and I hope you’ll be entertained by what I’ve written.
If you read about the early D&D, you hear of the legendary dungeons of Castle Blackmoor, Castle Greyhawk, and Undermountain. The basic game at this time involved travelling from a home base into the perilous underworld, full of monsters, traps, tricks and treasure, and then returning wealthier and more experienced… or, frequently, not returning at all.
The important part of this gaming environment was that the dungeon wasn’t just a few rooms. No, it was hundreds. Each level had many encounters, and there were many levels! I’ve heard Castle Greyhawk had at least 12 levels and as many sublevels (see here), and perhaps even more. Castle Greyhawk – in its adventuring form – was constantly evolving, and was the combined creation of Gary Gygax and his co-DM, Robert J. Kuntz. Many, many adventurers explored it and EGG and RJK would alter rooms as they were explored, open up new tunnels, and suchlike.
The structure of the dungeon was such that the first level of the dungeon had (mostly) the easiest monsters. Then each succeeding level deeper would have more and more difficult monsters, traps and challenges.
There is an interesting implication here for the games played: Monster vs PC balance was in the hands of the players!
This was because the players could, by choosing the level of the dungeon they explored, set the relative difficulty of the challenges. Achievement was based far more on what a PC could overcome rather than any story or quest-goal. So, if you met a hydra and it was too difficult for you, you ran! Part of the skill of playing the game was knowing when to retreat.
Too many difficult encounters? Explore the next level up! Too many easy encounters? Explore the next level down!
If you build a megadungeon, then all the painful calculations and comparisons that designers have to go through with modern D&D to calculate challenge ratings and encounter levels don’t really apply: as long as a monster wasn’t too far out of its league (an ancient red dragon on the first level), you’re fine. D&D also had a less steep power curve, so such problems were minimised.
It’s with this playstyle in mind that I wrote the article “How to be a Killer DM“. This is D&D being played in the most gamist of fashions: the more treasure and XP you get, the more you are considered to “win”. You’re testing the skill of the players at dungeon exploring and so playing hard but fair is the best way to go.
From the modern perspective, the megadungeon has several problems, of which the most severe is this: design time. You are spending a great deal of time detailing the areas the PCs may go into, without the knowledge of whether they’ll explore them at all! (To be fair, Gygax and company would often just write brief notes on each area, and improvise madly when those areas were reached; this is one reason Castle Greyhawk has had so much trouble reaching the printed page: Gygax’s notes are hardly publishable in their original form.)
Castle Greyhawk also had an advantage that your megadungeon probably doesn’t have: it got played daily. Gygax has several friends that were helping him design and test D&D, and they did a lot of playing. There is a big, big difference between daily play of D&D and fortnightly play (if that), which is often the lot of the modern player. (At present, I get to play each of my two D&D 3.5e campaigns just once every two weeks… and they both fall on the same weekend!) So, Gygax’s design work would get encountered sooner rather than later.
This lack of time really does restrict the size of the megadungeon in today’s campaigns. I know, you play daily with your friends and you have a ball. I’m very happy for you… alas, many of us older folk (I’m 35! 
) don’t have that luxury.
However, once you lose the megadungeon, you lose the self-correcting nature of balance in early D&D. At this point you need to start thinking about whether the challenges you’re setting your players are of the right difficulty level or not. You move away from status-quo encounters to tailored encounters, and that will be the subject of my next essay.
I think there are dungeons where the monster placement was arbitrary. Goblin in one room, Iron Golem in the next. =)
As for the EL/CR system, you just traded them for dungeon levels, although you are right, it shifted from the players choosing which monsters to face to the GM throwing it at them.
There was an interesting article on Dungeon Design that I read–I forgot where–that follows a similar track when designing single level dungeons. You build the dungeon like a circle, with the center of the circle the point of entry for the PCs. The closer you are to the circle, the easier the enemies are (ensuring that players face challenges “appropriate” to their level irregardless if they go north, south, west or east. The farther you are from the center, the more dangerous the challenges become.
Modern day incarnations
I don’t have any personal experience with things like “The World’s Largest Dungeon” which may hark back to the days and play-style you reference, but one place this seems alive and well is in D&D-based CRPG. Classics from Balder’s Gate and Icewind Dale, it was really in the player’s hands to move to more deadly areas and so it had the same feel you mention.
I think Temple of Elemental Evil had it as well, but for some reason that didn’t hold me as the earlier ones did. And of course it’s a staple of just about every MMORPG – get more powerful, take on harder quests and farm harder areas.
Those that crave a challenge would be dealing with things they could just barely handle, while others might stay back a bit to get mroe gold, gear, and grit…um, XP.
It works very well. It’s not the only way of having that balance (not that you implied it was), but it’s probably the one most obviously in the players hands.